Manufacturing’s Next Chapter: This Isn’t Your Parents’ Economy

U.S. manufacturing has mounted a fairly incredible recovery over the past few years. After plunging to 10-year lows in the wake of the financial crisis, for example, the value of new orders for nondefense ex-aircraft capital spending increased to a near-record high of $70.7 billion in May. Moreover, the Institute for Supply Management’s composite manufacturing PMI shows growth for nearly every month since August 2009.

But even as this recovery takes place and overall post-tax corporate profits surge to record highs, manufacturers aren’t exactly rolling in the dough. According to an annual report published by IndustryWeek, total revenues for the top 500 manufacturing companies in the U.S. fell 1 percent to $6.07 trillion in 2013 on an annual basis.

“Turnarounds are always possible, and we’re seeing a manufacturing turnaround. But things never return to where they were,” Rosabeth Moss Kanter who holds the Ernest L. Arbuckle Professorship at Harvard Business School, tells The Wall Street Journal.

The sector has been marred by labor problems, such as a lack of skilled workers and offshoring of key manufacturing processes, as well as regulatory issues in offshoring destinations. Although the tide does seem to be turning in the U.S. and indicators show growth, the landscape still looks very different now than it did 10 years ago.

For example, according to a PricewaterhouseCoopers report, U.S. steel-product manufacturers spent an average of 8.1 percent of revenues to ship from China to the U.S. in 2010. In 2006, this was just 3.2 percent. Part of the reason for this shift is raising labor wages in China, where hourly wages increased from 66 cents in 2004 to $2.49 in 2012, and are expected to increase to $4.42 by 2016, according to PwC. Higher wages mean higher overall costs, which companies are forced to pass on to customers if they are to remain profitable.